Institutional EYE

Commentary on Corporate Governance Issues

Investor communication: Plugging information asymmetry

February 11, 2016

It’s well established that company managements always find time for institutional investors, giving these investors access to more information than retail investors. But even within institutional investors, some may be able to glean out more information than others, if only because they asked more questions. Companies in answering questions, may want to be more transparent, but they need to realize that ‘offline’ conversations cause asymmetry in information dissemination. Timely disclosures of such conversations must be made to all shareholders. SEBI’s Regulation 30 and 46 is an important first step in this direction. But SEBI needs to push corporates more.

Equity as an asset class is more susceptible to price sensitive information than other asset classes. So for a stock market to function fairly, companies need to disseminate material information as soon as it is available and ensure that all stakeholders have access to the same information at the same time. One of the means by which companies share information with shareholders is through earnings calls and accompanying investor presentations.

Institutional Investor Advisory Services (IiAS) assessed the earnings call transcripts of the Nifty 50 companies for the period April 2014 to June 2015 (five quarters) to evaluate whether these companies are sharing information in a uniform and universal manner. 37 of these 50 companies have provided earnings transcripts or recordings on their websites, but only 22 of these companies have provided the transcripts consistently for all the five quarters. Surprisingly, 13 of the Nifty 50 companies do not have any earnings call recordings or transcripts on their websites.

Does this imply that these 13 companies don’t talk to their investors? That is hard to believe given that these companies have a well-established investor relations team. Therefore, it may be safe to conclude that these companies do have one-on-one meetings with investors. Again, IiAS is not suggesting that price-sensitive information is being exchanged in such closed-door meetings – in order to be more transparent: just that information shared in these meetings, is not being disseminated equally to all other shareholders.

Reviewing the 143 earnings call recordings and / or transcripts (of the 37 companies), there have been 58 occasions during which questions asked by participants have been answered ‘offline’. IiAS believes that these ‘offline’ instances increase as you move beyond the Nifty 50 companies. And data here can be more critical.

Answering questions offline can be rationalized – there maybe time constraints or the information is not readily available. But, should the company not then put up the information for all to see? If it does not, then it effectively means that only those that ask questions will get answers. This leaves the information access dependent upon the investors’ analytical capability and their access to management.

The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 has partly addressed this issue. Regulations 30 and 46 now require companies to publish their earnings call transcripts on their website. It further requires that the schedule of analyst or institutional investor meets and presentations made by the listed entity to analysts or institutional investors be simultaneously submitted to stock exchanges.

While regulations do not specify the time frame, listed companies should provide at least a 36-month record of such meets and presentations on their websites. But additionally they must also disclose their ‘offline’ answers on their website.

Listed companies in India must take cognizance of this asymmetry and address it, before the regulators ask them to.